VAT calculation and rounding rules

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This page explains how VAT calculations are done (or can be done depending on the options chosen) in Dolibarr ERP CRM.


Standard VAT and rounding rules

For an example we will use an invoice with two products, based in a country where the totals must be rounded to two decimal places.

  A
Description
B
Quantity
C
Unit price
D
Vat rate
E
Total without tax
=(B*C)
F
Exact tax amount
=(D*E)
G
Tax amount rounded
to 2 dec. places
=round(F)
H
Exact price
inc tax
=(E+F)
I
Price inc tax rounded
to 2 decimals
=(E+G)
1 Product alpha 1 1.24 10% 1.24 0.124 0.12 1.24+0.124=1.364 1.36
2 Product beta 1 1.24 10% 1.24 0.124 0.12 1.24+0.124=1.364 1.36

We have two ways to calculate the total of the invoice: summing each rounded line or summing the lines and rounding the total.

1) If we choose to sum the rounded lines (to 2 decimal places) lines, we get:

  • Total without tax: 1.24(E1) + 1.24(E2) = 2.48
  • Total tax 10%: 0.12(G1) + 0.12(G2) = 0.24 (we sum the rounded values of tax on each line)
  • Total inc tax (we sum total without tax + total tax): 2.48(Ex) + 0.24(Gx) = 2.72

Note that if we sum the rounded price inc. tax on each line, we get: 1.36(I1) + 1.36(I2) = 2.72 (the same result, so we know there is no error)

2) If we choose to round the amount (to 2 decimals) after summing the unrounded lines, we get:

  • Total without tax: 1.24(E1) + 1.24(E2) = 2.48 (same as method 1)
  • Total tax 10%: (1.24(E1) + 1.24(E2)) * 10% = 0.124 + 0.124 = 0.248 rounded to nearest two decimals gives 0.25 (we sum the amount without tax for each lines, calculate vat rate on this and subsequently we round the value to 2 decimals)
  • Total inc tax (we sum each line without tax and add the total tax): 2.48 + 0.25 = 2.73

The first point to note is that the result of Method 1 differs from the result of method 2 by 0.01. If you have n times the same line, the difference can be higher but is always lower than/equal to (n-1)*0.01. Also if you decide to round up or down instead of "to the nearest", you will have same problem (for example with rounding down, try with a quantity of 2 on line 2 and you will have same differences between method 1 and 2). Difference will just appears with different data but will still occur, so the problem is not on how we make the rounding but when.

The second point is that if we use method 2, we must not show the column I on the invoice, otherwise the total you show on your invoice (2.73) will not be the same as the total you get summing the totals of each line (1.36+1.36=2.72). Showing column H might be better but the total will still differ because the total (2.73) is rounded and the result of summing column H lines (1.364+1.364=2.728) will still differ.

So what to do ?

  • In some countries, calculations must always be done using method 1 for generating invoices. As this is the default calculation rule for Dolibarr, there is nothing to change from the default configuration..
  • In other countries (rarely), calculations must always be done using method 2 for generating invoices. To avoid having the total shown at the top of the invoice that differs from the totals of detailed lines, just do not show column I on invoice. This is the case with Dolibarr default invoice templates, so that's not a problem. To enable this rule of calculation, you must use Dolibarr version 3.5+ and add/override the constant MAIN_ROUNDOFTOTAL_NOT_TOTALOFROUND to 1 (in Home - Setup - Other).
  • In most countries, both methods are possible. In this case just use method 1 that will be more accurate for accounting (since if you use method 2, the total of vat collected on your invoice will not be the sum of F, nor the sum of G and this may create confusion subsequently). If you prefer to use method 2, use Dolibarr version 3.5+ and set constant MAIN_ROUNDOFTOTAL_NOT_TOTALOFROUND to 1 (Home - Setup - Other).

Second or Third Tax

Some countries may apply two or three taxes on each invoice line. This can be setup in the Dictionary (Home - Setup - Dictionaries - Sales taxes).

Possible local tax types are:
1: local tax is applied to products and services without vat (localtax is calculated on the amount without tax)
2: local tax is applied to products and services including vat (localtax is calculated on amount + main tax rate)
3: local tax is applied to products only without vat (localtax is calculated on amount without tax)
4: local tax is applied to products only including vat (localtax is calculated on amount + main vat)
5: local tax is applied to services only without vat (localtax is calculated on amount without tax)
6: local tax is applied to services only including vat (localtax is calculated on amount + tax)

For Brazil

See page BrasilTaxes


For Canada

Lexical

  • GST = Goods and Services Tax (TPS = Taxe sur les Produit et Services for Quebec)
  • PST = Provincial sales taxes (TVQ = Taxe de Vente Québecoise for Quebec = QST = Quebec Sale Tax)

Setup

The GST is applied automatically on each lines (when added or edited). Value of rate for second tax PST is automatically extracted by system from the dictionary table of VAT rates, for the GST vat rate line used and your country (Table llx_c_tva).

  • Warning.png Note that the second tax will be added only if you setup your company into Home - Setup - Company - Use 2nd tax to yes (this option is visible for country whose a second tax is defined into dictionary tables of vats).


Example of user setup: Go into Home - Setup - Dictionary - VAT and sale tax, into column "Rate" enter a GST vat rate with value 5, into column "Tax 2" (PST) enter a VAT rate 9.5 with type "2" (Type "2" means the tax 2 is calculated for product and services on the price including the GST). Change values or rates according to your province rates.

Note: Another solution is to set the "Tax 2" (PST) with vat rate 9.975 and set type of tax 2 to type "1" (Type "1" means tax 2 is added for product and services, and calculated on net price, so does not include GST vat for calculation. It is same than using 9.5 and making calculation on price including GST).


Example of calculation

  A
Description
B
Quantity
C
Unit price
D1
Vat rate GST
D2
Vat rate PST
E
Total without tax
=(B*C)
F
Tax GST
=(B*C*D1)=(D1*E)
G
Tax PST (B*C*D2)=(D2*E)
H
Price inc GST + PST=(E+F+G)
1 Product alpha 10 10 5% 9.975% 100 5 9.98 114.98

For India

There is SGST, CGST and IGST. Setup is available by default with 6.0

For Italy

You may need to add a negative withholding tax calculated on net amount.

Setup

Value of rates are found into the dictionary table from the standard vat rate (Table llx_c_tva). Total with tax and total amount of vat is modified according to calculation.

Setup example: When vat rate is 22, add a tax 2 (witholding) of type "1" (Type "1" means tax 2 is added for product and services and calculated on net price), rate is -20% (negative means amount will be substracted)

Example or calculation

  A
Description
B
Quantity
C
Unit price
D1
Vat rate
D2
Vat rate withholding tax
E
Total without tax
=(B*C)
F
Tax VAT
=(B*C*D1)
G
Tax 2 (B*C*D2)
H
Price inc VAT + Tax 2=(E+F+G)
1 Product alpha 10 10 22% -20% 100 22 -20 102


For Spain

Specific tax rules for Spain are supported from Dolibarr 3.0.

In Spain, there are two additional vat rates possible for each line:

  • The vat rate RE. Recargo de Equivalencia - a vat rate calculated on the total without tax for products, and added to the invoice total to obtain a total with tax.
  • The vat rate IRPF. Impuesto sobre la Renta de las Personas Físicas - a vate rate calculated on total without tax for services, and subtracted from the invoice total to obtain a total with tax.

Both additional taxes cannot be on the same invoice: RE is applied only for products and IRPF only for services. Because IRPF tax is always negative, in credit notes/invoices the total IRPF will be positive.

Setup

The two vat rates are applied automatically (if company has been setup to use them) on each lines (when added or edited). Values of rates are defined in the dictionary table from the standard vat rate (Table llx_c_tva). Total with tax and total amount of vat is modified according to calculation.

Setup example: For standard vat rate 10, Localtax 1 (RE) is set with type "3" (tax is applied on net price, for products only), rate 1.4%

Example of calculation

  A
Description
B
Quantity
C
Unit price
D1
Vat rate
D2
RE
E
Total without tax
=(B*C)
F
Exact tax amount
=(B*C*D1)=(D1*E)
G
Tax RE (B*C*D2)=(D2*E)
H
Price inc standard vat + RE=(E+F+G)
1 Product alpha 10 10 10% 1.4% 100 10 1.4 111.4

Example of calculation in credit notes

  A
Description
B
Quantity
C
Unit price
D1
Vat rate
D2
IRPF
E
Total without tax
=(B*C)
F
Exact tax amount
=(B*C*D1)=(D1*E)
G
Tax RE (B*C*D2)=(D2*E)
H
Price inc standard vat + RE=(E+F+G)
1 Product alpha 10 -10 21% -21% -100 0 21 100

Note

R.E. (Localtax1) is applied to sales of product and not to supply of services. But a service may be invoiced in the same invoice with a product sale if this is related to the product sale and it increases its cost (ex: shipping costs).

Currently to treat this case you must enter these services (ex: shipping costs) as a free line, and indicating the type as product, not as service.